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Mortgage rates WISH they were still at 2.97% – the number conveyed today by Freddie Mac’s weekly survey. Freddie’s data is accurate when it comes to capturing major trends over time, but can really fall short when the bond market is experiencing high volatility.
To say bond market volatility has been high recently is an understatement extreme proportions. There are things happening that did not happen in years. Some measures of volatility rival the March 2020 panic surrounding the covid, but this time there is no catalyst other than the market movement itself.
Today was by far the worst of the group regarding this most recent wave of volatility. Most mortgage lenders added another eighth of a percent to their 30-year fixed rate offerings. Over the past week, most lenders are 0.25-0.375% higher. And compared to the start of last week, many lenders are half a point higher. In other words, what was 2.75% is now 3.25%. What was 2.875% is now 3.375%.
Are these high rates in a historical context? Not at all. Before Covid, they would be in line with record lows. But compared to recent lows, that rate spike is getting about as sharp as we’ve seen over the past few decades – not quite on par with the worst offenders, but close enough to be in their league.
The rest is a repeat of the most recent comment:
Why are rates suddenly rising so fast?
It’s a simple question with a long answer. Comment from last week enters More details to answer it, but the short version is that the bond market has been pointing to a rate hike since August 2020 and the most recent hikes only represent a bit of an acceleration of that process. As for the reasons behind this reason, here are some points for those who are not inclined to click on the link above:
- Bonds / rates were initially a grim reality in mid-2020 and this reality has become less threatening in some ways by the end of the year, and significantly less threatening in 2021
- The number of cases is in free fall in 2021 and the distribution of vaccines – although imperfect – is going rather well (60 million doses and more so far)
- Prospects for a fiscal stimulus have grown significantly with the Democratic sweep of Congress in early January, and the fiscal stimulus is clearly putting upward pressure on rates
- Inflation measures sparked conversations about inflation returning to the stage as a threat to interest rates after more than a decade of being extremely subdued
- economy is doing better than expected when it comes to adjusting to covid restrictions
- Optimistic attitudes about the possibility of people returning to the workforce in greater numbers after widespread immunization distribution and full-time in-person return to school.
- generally stronger economic data despite recent lockdowns
- the belief that a combination of fiscal and monetary stimulus will continue to support economic resilience and inflation
- the certainty that the Fed will buy fewer bonds as soon as the economy justifies the change, thus prompting a “taper tantrum” part 2.
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